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The Macroeconomic Effects of Longevity Risk Under Private and Public Insurance and Asymmetric Information

Author

Listed:
  • Ben J. Heijdra

    (University of Groningen
    CESifo
    Netspar)

  • Yang Jiang

    (University of Groningen)

  • Jochen O. Mierau

    (University of Groningen
    Netspar)

Abstract

We study the impact of a fully-funded social security system in an economy with heterogeneous consumers. The unobservability of individual health conditions leads to adverse selection in the private annuity market. Introducing social security—which is immune to adverse selection—affects capital accumulation and individual welfare depending on its size and on the pension benefit rule that is adopted. If this rule incorporates some implicit or explicit redistribution from healthy to unhealthy individuals then the latter types are better off as a result of the pension system. In the absence of redistribution the public pension system makes everybody worse off in the long run. Though attractive to distant generations, privatization of social security is not generally Pareto improving to all generations.

Suggested Citation

  • Ben J. Heijdra & Yang Jiang & Jochen O. Mierau, 2019. "The Macroeconomic Effects of Longevity Risk Under Private and Public Insurance and Asymmetric Information," De Economist, Springer, vol. 167(2), pages 177-213, June.
    • Handle: RePEc:kap:decono:v:167:y:2019:i:2:d:10.1007_s10645-019-09336-y
    DOI: 10.1007/s10645-019-09336-y
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    References listed on IDEAS

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    1. Helmuth Cremer & Jean‐Marie Lozachmeur & Pierre Pestieau, 2010. "Collective Annuities and Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 23-41, February.
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    Cited by:

    1. d’Albis, Hippolyte & Kalk, Andrei, 2021. "Why do we postpone annuity purchases?," Journal of Mathematical Economics, Elsevier, vol. 95(C).
    2. Ben J. Heijdra & Pim Heijnen, 2024. "Efficiency and equity: A general equilibrium analysis of rent‐seeking," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(4), August.
    3. Faris Alshubiri, 2021. "The stock market capitalisation and financial growth nexus: an empirical study of western European countries," Future Business Journal, Springer, vol. 7(1), pages 1-20, December.

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    More about this item

    Keywords

    Social security; Annuity market; Adverse selection; Inequality; Redistribution; Overlapping generations;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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